Small Is Beautiful – How to Compete with Bigger Competitors

How to compete with bigger competitors

It’s easy to forget today, but market leaders such as HP, Microsoft and Intel® were start-ups too. HP still has its original garage. They didn’t (quite) go from garage to gargantuan overnight, so how did they outpace their competition – and how can small businesses do today emulate their success?

Technology has provided small businesses with new tools to slay bigger rivals. But where small firms used to use the internet to disguise their size, now they revel in it, using size itself as a competitive advantage.

It’s what eatbigfish consultancy boss Adam Morgan identified in “Eating the Big Fish” as thinking like a “Challenger brand”. Small businesses can be more agile when it comes to acting on opportunities and – because necessity’s the mother of invention – more innovative than their larger rivals. So, here are some ideas to think about if you’re competing against Goliaths:

Take out costs. It’s tricky for small businesses to compete on price, but this is less about lowering costs than examining your operating model to take costs out.

Start by identifying your real value proposition – why do customers need you? Are there costs you can take out without the customer knowing – or caring? Ryanair is the classic example, emulating US budget carrier Southwest’s model and relentlessly removing ‘frills’ throughout its supply chain. And while boss Michael O’Leary is often lampooned for it, Fresh Minds research suggests airline passengers are less driven by brand than price when it comes to carriers.

Get your customers to fund your growth. Instead of seeking bank or VC funding, grow organically, starting with a key customer. Gravitate to recurring, high margin revenue so you’re not lurching from feast to famine or having to cut your prices to get by. Costco’s cash-and-carry model has flourished this way, its growth funded by commercial and individual customers who were willing to buy in bulk to get low prices. Naked Wines’s customers are its “angels”, funding independent wine-growers and pre-ordering their stock. The earlier you buy, the cheaper the offering.

Naked is also a good example of another outsmarting strategy: cut out the middle man. By dealing directly with independent growers, Naked offers wine lovers indie labels at keen prices. It also creates a buzz and community around its business – customers are real stakeholders and rate wines and exchange views as if they were across the table from one another.

Create a new business model. Award-winning toy manufacturer and marketing business Wow! Stuff has a model that effectively makes the best of all worlds: it is funded by invoice discounting, manufactures in China, crowdsources inventions via the web and uses UK talent to build retail and branding environments to sell products globally. You’ll need a decent web infrastructure for this type of set-up but cloud computing makes bricks-and-clicks hybrids possible.

Be prepared to change tack if your first (second, third) idea falls on stony ground. Says London Business School Entrepreneurship chair professor John Mullins: “Too often small businesses fall in love with a product or idea and forget they are in business to solve a problem.”

Capitalise on the crowd. A limited budget need not hamper your ability to build ‘fans’ and win referrals. At razor and shaving products business King of Shaves, Will King actively uses Twitter and his blog to assert his underdog status, while promoting products.

Beyond this, sites such as Groupon discount provider show how easy it is to grow fast and monetise websites with ‘social commerce’ – group buying whereby a deal is offered if a certain number of people sign up to it. There are tools such as SyncFu that make s-commerce accessible to any business.

Compete on service. “Show your size is an advantage by turning around quotes fast or being flexible. Take advantage of the perceived arrogance of big businesses, and listen to customers – you may get a sense of frustration with a large competitor,” says Dominic Monkhouse, managing director of the UK arm of hosting company PEER1. Read customer forums and online comments on rivals’ service. Where can you do better?

“Clients really appreciate the fact that the person proposing the outcomes is the person who’ll deliver it,” says David Pippett, founder of DWP Public Relations. To keep payroll down, he maintains an associate network, so he can scale up quickly without compromising quality.

Value and values combined can also give small companies the edge – think Innocent Drinks, or Ella’s Kitchen – and even in commoditised sectors, the human touch can be a deciding factor. Eclipse internet actively uses its service quality to compete in a crowded market. Knowing customer frustration with call-centres, it keeps its operations local and follows up on help-desk enquiries. It’s during those conversations that it can find out more about what its existing customers want – creating confidence in their judgement that gives them a lever to offer more choices.

“People respond to brand personality and knowledgeable service. They appreciate speaking directly to the boss on the phone,” says Ian Sanders, a business coach and author of “Unplan Your Business”. Loyalty gives you lever to cross-sell. “If you have customers that love dealing with you, then you can find opportunities to diversify to a receptive audience.”

Become a specialist. “Find real problems. Big companies generally don’t innovate very well,” says Mullins. “Most small companies become bigger because they do something better or faster.”

PEER1 has just launched a GPU cloud offering, a niche area that means it’s gone from offering no cloud services to being mentioned alongside Amazon.com. “Be world class at one thing and be better than competitors, and people will infer that this reflects your company as a whole,” says PEER1’s Monkhouse.

In the same way but in a completely different industry, Casa Camper, the hotels created by Spanish shoe company Camper, has created its own ‘boutique’ niche – hotels with no room service, where guests can get food from the kitchen as often as they like. It’s not for everyone, but that’s the point of specialisation.

Use your talent. If you work for a small business, it’s likely your input has more impact on the bottom line, says Phil McCabe of the Forum for Private Business. So make sure your team knows this. Being lean means you can be more flexible than big businesses with layers of decision-makers. Outsource non-core tasks and use freelancers. But don’t take your culture for granted. Bring in interns but give them real work or use placement programmes such as Step – former interns become great brand ambassadors for your business. Make sure you have able ‘cornerstones’ in that top team, then hire multi-taskers, set clear performance goals, and weed out those who aren’t cutting it. Emulate Netflix, or Zappos.com, by calling on everyone to formulate company values that can be applied to the real world, and will get used in performance reviews.

Invest in your workspace. Monkhouse reinvested savings from a rent-free period in an office refurb. “Your workspace sets a context for visitors. If my expectation is for the business to grow, I can’t sell that vision if the office is a shed,” he says.

Maintain a small attitude, even as your numbers swell. Emulate Virgin Group or W L Gore, defying old efficiency laws by maintaining comparatively self-contained businesses where headcount’s below 100. This drives up the level of expertise, narrows the focus – and you cannot ‘hide’ if headcount remains low.

Tap public funds. Public sector grants may be down, but there may be funding or training allowances you can access. Get an intern to research what’s available and figure out if the return outweighs the red tape. Ian Sanders was able to use the UKTI’s Passport to Export to fund a business trip to the US, while Getting British Business Online and London’s Silicon Roundabout are just a couple of schemes the coalition’s currently pushing.

Band together. Businesses in south London’s Brixton did it by creating their own currency – the B£ (Brixton Pound). Glasshouse Events holds worldwide Second Chance Tuesdays to draw entrepreneurs and backers together. The UK Consumer Forum gathers together small, entrepreneurial companies that want to learn from each other and evangelise great service. There’s strength in numbers.

Innovate faster. Big companies find it much harder to adopt new technology. Their size counts against them because change costs more and takes longer. Growing businesses can outflank them by taking advantage of the latest IT. For example, cloud-hosted services like HP Virtual Rooms, an online collaboration tool, and Microsoft Office Web Apps and SkyDrive, which deliver file storage and business applications via the web, can help businesses do more for less. Upgrading to Windows 7 gives growing business a responsive, easy to use operating system that helps people work they way they want to with fewer interruptions and security problems. Similarly, smaller businesses can refresh their computers more frequently, giving them the advantage of more powerful processors, such as the Intel® Core™ i5 processor, and business-class PCs such as the HP ProBook range.

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